Wednesday, June 15, 2011

ARC Loans Don't Count Against the Business Loan Cap

In an article in the May issue of Credit Union Magazine, Mark Wolff, CUNA's SVP of Communications, cites the story of Robin Pharo, who runs a green consulting business, as a justification for increasing the member business loan cap from 12.25 percent of assets.

According to the article, she appraoched two banks and a credit union about getting a Small Business Administration ARC loan. The banks did not make the loan, but the credit union, Summit Credit Union, did.

ARC loans were a temporary program authorized by the American Recovery and Reinvestment Act. The ARC loan program offered up to $35,000 in interest-free financing and the loan was 100 percent guaranteed by Small Business Administration.

He uses this as an illustration as to how small businesses would benefit from increasing the cap. [editorial comment: I do wonder whether Summit would have made the loan without the guarantee]

Here is the problem -- ARC loans do not count against the aggregate member business loan cap.

The term member business loan does not include the extension of credit where "the repayment of which is fully insured or fully guaranteed by, or where there is an advance commitment to purchase in full by, any agency of the Federal Government or of a State, or any political subdivision thereof."

If credit unions can make an unlimited number of such loans without it impacted its member business loan cap, there is no need to raise the cap.


  1. You are right, ARC and other government guaranteed loans are not counted against the cap. Neither are loans for less than $50,000. However, the point was that banks could not be bothered with that borrower and the credit union was there to help. As the borrowing needs of that and other members grow, the credit union may have problems meeting their needs due to an anti-competition measure that was inserted by bankers into our legislation limiting us to a 12.25% lending cap. We are at our cap and having to turn members needing loans away and local banks are calling or denying loans every day because their central office says reduce commercial and business lending. And yet, you bankers stand firmly opposed to any change in the cap. If you won't lend, get out of our way so we can!

  2. It isn't surprising that two banks refused to help this small business owner. This scene is replicated daily by commercial banks, the vast majority of which are only interested in middle market lending, not providing credit to mom and pop business enterprises. The real moral to this story is that there is, indeed, a need to raise the cap. Perhaps there is no need for banks...



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